ECO100Y1 Lecture : Notes on General Equilibrium Model

When profit-maximizing firms in competitive markets are earning a negative economic profit:

a. the most inefficient firms will exit the industry.

b. market demand must exceed market supply at the market equilibrium price.

c. new firms will enter the market.

d. market supply must exceed market demand at the market equilibrium price.

In order to be binding, a price floor:

A) must lie above the free-market equilibrium price.
B) must lie below the free-market equilibrium price.
C) must coincide with the free-market equilibrium price.
D) must be high enough for firms to earn a profit.

In order to be binding, a price ceiling

a. must lie above the free market equilibrium price

b. must lie below the free-market equilibrium price

c. must be high enough for firms to earn a profit

d. must coincide with the free market equilibrium price